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Wednesday, July 13, 2016
Markets fluctuate after setting new record highs
Dow inched up 4, advancers barely ahead of decliners & NAZ added 1. The MLP index fell a fraction to the 323s & the REIT index was about even in the 369s . Junk bond funds were little changed & Treasuries climbed higher. Oil retreated on new data from the IEA (see below) & gold went higher.
When Theresa May takes office, her most-watched act as UK prime minister will be naming a Brexit Czar. Extricating the UK
from the EU will require finesse & force & whoever gets
the job will need to be unswervingly loyal to the new leader & also
have been a backer of the “Leave” campaign. The formation of a new
Brexit dept with a secretary of state at its helm will be one of
May's first announcements. Finding the right person to manage Britain's difficult divorce from
the bloc while calming volatile markets & a still-stunned
electorate is May's most important task. May
had promised that whoever she picks for the Brexit post will have been a
bona fide supporter of leaving,. One of the hardest parts of the job will be selling whatever
deal is reached to those within the Conservative Party who, unlike May,
campaigned for the UK to leave.
Oil production from the Middle East has climbed to a record while
US output slumps, the International Energy Agency said, a sign that
OPEC's strategy of defending market share is succeeding. Middle
Eastern output exceeded 31M barrels a day for a 3rd month in
Jun amid near-record supply from Saudi Arabia, while US oil
production slid 140K barrels a day to 12.45M. The IEA, which mostly kept
forecasts for supply & demand unchanged, said that while the
re-balancing of global oil markets is progressing, record-high
inventories remain “a threat to the recent stability of oil prices.”
“When
U.S. shale production was moving upwards very fast it became
fashionable to talk of lower reliance on traditional suppliers,” the IEA
said. The Middle East’s resurgence is “an eloquent reminder that even
when U.S. shale production does resume its growth, older producers will
remain essential for oil markets.” Oil
has recovered from the 12-year low as Saudi Arabia's strategy to pressure OPEC rivals succeeds in
reversing the US shale oil boom. Elevated output from the Middle East
pushed the region's share of world supplies to 35%, the highest
since the late 1970s. Production
from OPEC climbed to an 8-year high last month, boosted by the re-admission of Gabon, which
swelled the number of members to 14. The group's crude
output rose 400K barrels a day to 33.2M as Saudi Arabia
boosted production to meet peak domestic demand during the summer &
as Iran continued its export recovery following the end of
sanctions. Not all of OPEC's members have reaped the benefits of the Saudi-led market strategy. Venezuela's crude production sank to a 13-year low of 2.18M barrels a day
last month as an economic crisis triggered by the oil-price rout weighed on the its petroleum industry. In
the US, crude production retreated 220K barrels to 8.9M a
day in Apr, the most recent month. That was the biggest drop since 2008 as the 2-year price slump depressed investment & drilling activity. Output
from all countries outside OPEC will tumble by 900K barrels a day
this year, the largest decline since 1992, before recovering 200K
barrels a day in 2017, the agency predicted. The
agency made few changes to its forecasts. The world growth rate for 2017 remains
unchanged, with demand seen rising 1.3% to 97.4M barrels a
day. While supply & demand were mostly in balance in Q2, bloated stockpiles “remain a dampener on oil prices.”. Oil inventories in industrialized nations
climbed to an all-time high of more than 3B barrels in May, while
the volume of crude being hoarded on tankers at sea has reached the
highest level since 2009, the IEA estimated. “The modest fall back
in oil prices in recent days to closer to $45 a barrel is a reminder
that the road ahead is far from smooth,” the agency said.
China’s exports & imports slipped in $ terms in Jun as soft
demand at home & abroad continues to weigh on its economy. Overseas shipments fell 4.8% from a year earlier & imports dropped 8.4%. Trade surplus slipped slightly to $48.1B. Both
exports & imports in yuan terms looked better, with outbound
shipments eking a small gain, reflecting the influence of a weakening
currency The yuan posted a 5th straight drop last week, the longest losing streak this year, signaling policy makers
are more tolerant of further weakening. With tepid global demand &
businesses proving reluctant to invest, the gov has been stepping
up spending to keep its growth target of at least 6.5% this year
in sight.
Stocks are digesting gains after reaching record levels. There has been little good news to support this run, making the advance look suspicious. It gives traders an opportunity to cash in on short term gains. Banks earnings from the biggies are next & the bulls are keeping their fingers crossed, hoping for the best.
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